Reuters. A freeze in federal debt ceiling talks is already having dire consequences for the US economy, increasing borrowing costs and the country’s debt burden, according to prepared statements from US Treasury Secretary Janet Yellen, scheduled for Tuesday.
Yellen will deliver the message to a group of bankers in Washington, recalling the “last-minute maneuver” on the debt ceiling in 2011 that led to the first downgrade of America’s credit rating.
“Time is running out. “Every day that Congress fails to act, we increase economic costs that could slow the U.S. economy,” Yellen said in prepared remarks for an event hosted by the Independent Community Bankers of America.
“The US economy is hanging by a thread. And the livelihoods of millions of Americans. There is no time to lose. Congress must resolve the debt ceiling quickly.”
On Monday, Yellen told Congress she could only pay the nation’s bills without raising the debt limit until June 1, increasing pressure on Republicans in Congress and the White House to reach a compromise deal in the next few days.
US President Joe Biden plans to meet with Republican Speaker Kevin McCarthy and three other top congressional leaders at 1500 EDT (1900 GMT) on Tuesday to develop a plan to prevent the first default in the country’s history.
The 2011 crisis — when lawmakers raised the debt ceiling just before the government stopped making payments — quickly showed the dire consequences of inaction.
Consumer confidence subsequently fell more than 20%, while the S&P 500 stock index fell 17% and the costs of home and car loans rose, he said.
Allowing the U.S. to default would unleash an economic and financial disaster, endanger the country’s reputation and undermine the foundations of America’s global economic leadership, he said.
Investors were already reluctant to hold public debt as early as June, and the stalemate adds to the global debt burden, he said.
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Yellen posted higher net profits in 2022 than before the pandemic, even as some regional banks came under more pressure following the failure of two major banks. Valley Bank and Signature Bank in March.
According to Yellen, there were some “aftershocks,” including the failure of First Republic Bank, though she sees “no change in the underlying health of the banking system.”
Still, the Treasury remained vigilant and was monitoring conditions closely, Yellen said, adding that even if smaller firms were seeing runs on deposits that risked contagion, the government was ready to take further action if necessary.